Apple options case leads to civil charges against two

SEC files suit against two former top executives

HOWARD MINTZ and TROY WOLVERTON, San Jose Mercury News

Published 5:30 am, Wednesday, April 25, 2007

SAN JOSE, CALIF. — Securities regulators on Tuesday filed civil charges against two former top Apple executives, the first legal fallout from stock options backdating that has placed a cloud over the company and CEO Steve Jobs since last year.

The action was expected and was anticipated to largely clear the air for Apple and Jobs. But in response to the charges, the two former executives pointed fingers at Jobs and the board, keeping the final outcome of the investigation murky for the time being. Still, Jobs and Apple's board appear likely to avoid charges.

In a statement, former Apple finance chief Fred Anderson placed the blame for the backdating of a particular 2001 grant in part on Jobs. In doing so, Anderson tore into one of Jobs' key defenses — that he didn't know the accounting implications of backdating.

Everything that Heinen did related to Apple's options grants was "fully understood and authorized" by Apple's board of directors, Miles Ehrlich, Heinen's attorney, said in a separate statement.

Jobs has served as a director of Apple since 1997.

An Apple representative did not immediately return a call seeking comment on the Securities and Exchange Commission suit or on Anderson and Heinen's allegations. Likewise, Mark Pomerantz, Jobs' attorney, did not return inquiries seeking comment.

In complaints filed in federal court in San Jose, the SEC charged Heinen and Anderson with violating securities fraud laws for their involvement in backdating at the company in 2001, including an instance of backdating their own options.

Anderson simultaneously filed a settlement with the SEC that calls for him to pay $3.5 million in fines and penalties, but does not require him to admit liability.

Heinen, meanwhile, is expected to vigorously contest the SEC charges, which in part accuse her of breaking securities laws for the backdating of a massive grant to Jobs in 2001 and the falsification of a document to allegedly conceal the backdating. Heinen's lawyers insist she did not backdate options, had no role in the phony document and followed the instructions of Apple's board in handling Jobs' options.

"It is simply unfair to single out Nancy Heinen," Ehrlich said in a statement. "To suggest that Ms. Heinen engaged in fraud is to misunderstand the facts of what happened."

Still, the SEC complaint pins the blame for the backdating on Heinen and alleges that Anderson failed to take steps as CFO to detect her actions.

The case is notable for what it does not include — any legal action against Jobs. The SEC didn't say whether it would bring further charges against individuals. But in the past, it has typically tried to bring charges against individuals at particular companies all at once.